CAE Inc

CAE Inc is a Canadian public company (Toronto Stock Exchange Symbol: CAE), headquartered in Montréal. The company is engaged in the manufacturing of advanced simulation and training devices for civil and military applications and the delivery of services pertaining thereto. Boasting some 5000 employees, CAE Inc is the acknowledged market leader in a number of the market segments in which it competes. For the fiscal year 2005 ending on 31 March 2005, the company reported revenues of $986.2 million. Operating in a capital intensive environment, the company reported total assets of almost $1.7 billion.

History

CAE Inc began its existence as Canadian Aviation Electronics Ltd in 1947, founded by Ken Patrick on Saint Patrick's Day (17 March) of that year. Patrick wanted to take advantage of the experience and knowledge of "a war-trained team that was extremely innovative and very technology-intensive."

In 1952 CAE received its first contract, an order to develop and build a flight simulator for the CF-100 aircraft of the Royal Canadian Air Force. The contract served as a test bed for new techniques and methods, which eventually netted the company an extension to the contract as well as its first export order (from the Belgian Air Force). In 1955 CAE was contracted to design and build the first Canadian-built flight simulator for a DC-6B aircraft for Canadian Pacific Airlines.

Business, mostly from the Canadian and international military, grew in the years that followed and CAE developed additional expertise in the simulation of complex environments for aircraft operators and production plant environments. In 1962, now with a subsidiary in Germany, CAE decided to enter the field of digital technology and to pursue a larger share of the commercial market.

Signalling a shift towards greater diversification, the company was renamed CAE Industries Ltd in 1965 and began to acquire a number of companies in different industries. Among them were Northwest Industries Limited (which would later become CAE Aviation Ltd) and the Canadian Bronze Company Limited.

In 1971 CAE's revenues surpassed the $50 million mark. The company continued to grow as airlines put greater emphasis on training in light of a worldwide fuel shortage and concerns about the environment and CAE developed more advanced simulation equipment to respond to these needs. It was also selected to design and build a control system for the CANDU reactors of Atomic Energy of Canada Limited (AECL), for which it would also offer simulators, thus applying its expertise to other areas in an effort to increase the return on its investment. In 1976 CAE was awarded a contract for the design of a simulator for the space program. The equipment was to be used to simulate the functionality of the CANADARM, Canada's principal contribution to NASA's Space Shuttle program.

The flight simulator business remained the mainstay, however, and in 1983 CAE achieved yet another milestone. With the delivery of a flight simulator for a Boeing 757 for Eastern Airlines, it became the first company to deliver a simulator before the aircraft itself had been certified. The company also produced flight simulators for helicopters such as the Lynx and gradually expanded its business to all regions of the world. In 1985, for example, CAE gained its first customers in Australia and China, respectively.

For the 1990 fiscal year CAE reported more than $1 billion in revenues for the first time, chiefly due to buoyant demand for its simulation equipment in the late 1980s. The company was still in the process of acquiring businesses, and from 1991 to 1998 it acquired no fewer than nine companies in industries ranging from railway axle reconditioning to sophisticated industrial cleaning services. Over the same period, CAE divested itself of four companies, among them Northwest Industries Limited (renamed CAE Aviation Ltd in 1992), which was sold to Spar Aerospace Limited, ahead of a further refocusing of its activities that was to occur in 2002. The 1990s at CAE were also marked by frequent changes in the corporate office, with six different individuals heading up the company during that decade.

Starting in late 2000, the company began to enter the naval automation and control systems market through acquisitions and organic (internal) growth. While still offering its training and simulation expertise, CAE also started to produce systems that would be used on board ships to control the systems on deck as well as in the engine room.

Over a seven-month period in 2002, CAE, in what appeared to be the result of a changed strategy, exited the industrial products manufacturing and service businesses by selling off its cleaning technologies, its sawmill operations, and its fibre screening operations. Also in 2002, CAE signed a ten-year agreement with Airbus, the European airplane manufacturer, for the establishment of a worldwide training centre network.

Operations

CAE carries out business in two segments: Civil Simulation and Training and Military Simulation and Training. The Marine Controls business unit was sold in early 2005. During the 2005 fiscal year, its two remaining lines of business constituted 53 and 47 percent respectively of its $986.2 million in revenues. While the company is known for the supply of new flight simulators, it has also gained substantial business from the supply of visual and other systems simulation components, which are used in the modernization of existing equipment.

The Civil Simulation and Training business segment, together with its military counterpart, represents the origins of the company. CAE is the leader in simulators, with more than 80 percent of the market (with a base of 100 installed), and it is the runner-up in the market for training services. An agreement with Airbus has it providing the first full-flight simulator for the new A380 aircraft in addition to providing training services for Airbus aircraft. The company's training locations are located across five of the world's continents (Australia being the exception).

The Military Training and Simulation business segment focuses not only on airborne but also land-based applications. Moreover, on the military aviation side, CAE also provides simulators for helicopters such as the Sikorsky S-70 "Black Hawk." For land-based simulation and training, CAE has developed solutions that allow its clients to combine weapons, vehicle and communications scenarios for a more realistic training environment.

CAE Inc is arguably a market and technology leader in the markets in which it is involved. Following the strategic realignment of the late 1990s and early 2000s, it has set its sights on advanced technologies in a select number of fields. By increasing its focus on the provision of training services, the company has increased the proportion of its more predictable revenue stream vis-à-vis the simulation market, which is cyclical and more sensitive to economic and geopolitical developments.

Community Work

CAE's involvement in the support of the communities in which it operates is worldwide. The company funds six university scholarship programs in Canada and two in the United States for a total number of 17 students enrolled in an undergraduate or graduate engineering program. Through its SimuFlite flight training school, CAE also provides aviation training scholarships to students in universities that are part of the University Aviation Association, Women in Aviation International, and the Organization of Black Airline Pilots, providing opportunity and motivation. In Germany, the company's local subsidiary helps to promote the increased participation of women in the science and technology sectors.

The company is also involved in the annual United Way fundraising campaign, supports the arts and its employees' involvement in a variety of charitable causes, provides funding to the Historica Foundation of Canada, and sponsors a hockey training camp and team in Dubai (United Arab Emirates).